UTI-I Eyes Repo Mart To Service High-cost Loans

Mumbai, Nov 5: | Updated: Nov 6 2003, 05:30am hrs
The specified undertaking of the Unit Trust of India or UTI-I has plans to use the repo market to service its high-interest loans, mainly borrowed for servicing unitholders of its erstwhile flagship scheme US-64. UTI-1 houses all the assured return schemes of erstwhile UTI.

However, on the back of systematic selling in the last few months in the rising market, some select schemes of UTI-I are currently sitting on cash and are planning to deploy this cash in the repo market as well. The Sensex has gained over 66 per cent in the current fiscal.

UTI-I, which last week received a nod from the Reserve Bank of India (RBI) to participate in the repo market, will be using some portion of its G-Sec kitty also. These G-Sec holdings are currently valued at about Rs 3,500 crore.

Said a UTI official: The repo market will reduce our borrowing cost.

A large portion of the UTI-I loan is used for servicing unitholders of US-64. The average cost of borrowing of UTI-I is about 5.5 per cent. While deploying these funds through repo market, UTI-I can save about 100 basis points as the current repo rate stands at 4.5 per cent, the official said.

The outstanding loan of UTI-I is currently worth about Rs 2,000 crore. This amount was raised by UTI-I by placing government-guaranteed bonds with several banks.

On the usage of excess funds in select schemes, the official said: With the central banks plans to permit only banks in the call market, UTI-I will now have the option to park its excess money in the repo market.

In August 2002, the Cabinet Committee on Economic Affairs (CCEA) granted approval to a UTI reform package. As per the package, UTI Act 1963 was repealed and subsequently UTI was bifurcated into two entities, UTI-I and UTI-II. The bifurcated UTI began operations with effect from February 1, 2003. In accordance with the Act, 20 assured return schemes along with US-64 and Special Unit Scheme with a corpus of over Rs 30,000 crore was transferred to UTI-I.

The prominent schemes which moved to UTI-I at the time of bifurcation include: Unit Scheme 1964, Childrens Gift Growth Fund 1986, Bhopal Gas Victims Monthly Income Plan 1992, Rajlakshmi Unit Plan (II) 1994, Childrens Gift Growth Fund 1999, Rajlakshmi Unit Plan 1999, Institutional Investors Special Fund Unit Scheme 1997 (II), Institutional Investors Special Fund Unit Scheme 1998 and Institutional Investors Special Fund Unit Scheme 1998 (II).